Annual compliance training 2011 bermuda brokers


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  • Compliance laws, rules and standards generally cover matters such as observing proper standards of market conduct, managing conflicts of interest, treating customers fairly, and ensuring the suitability of customer advice. It also includes specific areas of focus such as the prevention of money laundering and terrorist financing.
  • Compliance & AML groups objective is to establish a strong compliance culture within the LOM Group, by providing a framework of guidelines.

    In order to implement the above broader objectives, the CM/MLRO and their designate shall:
  • The Compliance function has evolved over time as part of the firms self-regulatory initiatives and as a resource to provide support to supervisors in carrying out their management responsibilities. LOM’s Compliance functions provides, among other things advisory, monitoring and training to staff and management.
  • The compliance group provides day to day regulatory and compliance advice to LOM’s front and back office businesses on an ongoing basis. These efforts involve responding to questions and issues as they arise and proactively keeping LOM’s businesses apprise of regulatory developments and firm policy changes.
  • Compliance  reviews  are  carried  out  throughout  the  compliance monitoring  program  by  the CM/MLRO and their designate  to  cover  all  of  LOM’s business activities.  This is to ensure that the following issues are considered while preparing compliance monitoring program:
  • The compliance Function must advise senior management on compliance laws, rules and standards, including keeping them informed on developments in the area.
  • A core responsibility of the compliance department is to assist management in the development of policies, procedures, and guidelines designed to facilitate compliance with applicable laws and regulations. The compliance department will develop the policies and procedures with the assistance of relevant management or staff. The Compliance department is also responsible for updating and amending policies and procedures in light of regulatory developments (such as new rules and enforcement and disciplinary actions), as part of self-assessment and internal examinations and/or as a result of business changes. The compliance department will also work with the respective managers and employees to ensure that policies and procedures appropriately reflect the new business products, services or trends etc.
  • LOM’s intranet site is known as the Dashboard. In addition to providing access to all automated tickets and current f/x rates, it also contains a section (“Documentation”) that contains every major policy and frequently used documents in PDF format. This includes all account forms, physical stock forms, Compliance Manual, Anti Money Laundering Manual, wiring instructions, and much more.

    In the initial screen, any document can be viewed or printed by opening it on screen. For documents that are jurisdiction-specific, there are drop down menus to choose Bermuda or Bahamas. The second screen allows you to mark all the documents you want, choose a jurisdiction, and click one button - you will then receive one or more emails with all the PDF forms you requested attached, ready to forward to a client or prospect, or to print out yourself. Documents that should not be distributed - such as the Compliance Manual - cannot be accidentally included. Choose the "email" option to access this second screen.
    By having all documents in one easy-to-access, central location, there is the advantage that you will always get the most current version of any document - therefore please do not store document files in your own directories, as they may change without notice.
  • With respect to the safeguarding and disposal of client information, employees are expected to;

    Any supervised person who violates the non-disclosure policy described above will be subject to disciplinary action, including possible termination, whether or not he or she benefited from the disclosed information.
  • An employee is permitted to disclose confidential client information only to such other LOM staff that needs to have
    access to such information to deliver the LOM's services to the client. Employees are also prohibited from making
    unauthorized copies of any documents or files containing confidential client information and, upon termination of
    their employment with LOM, must return all such documents to LOM.
  • To protect the confidentiality of the Company’s confidential and proprietary information and the confidentiality of clients' and potential clients' records,

    Photocopies of confidential information may only be made as required, and all copies and originals of such documents must be disposed of in a way that keeps the information confidential.
  • Due to the time spent actually transacting, or by time spent checking quotes or following the market. Trading should not be frequent enough to be deemed day trading.

    Point 2# Sufficient funds must always be in the account before trading. Any special considerations must be
    approved by the Credit Committee, just as with clients.

    Staff should take extreme care to ensure that their personal trading does not raise the appearance of possible front running, particularly in less liquid securities. Staff trading is monitored by Compliance and suspicious trading will be investigated (for example, where the
    employee receives a better price than the customer).
  • Signing External Agreements - Examples of external agreements include control agreements (pledge agreements), portfolio
    monitoring agreements, and automatic securities disposition or acquisition plans.

    Third Party Agreements – Example, this would include any agreements to abstain from selling stock for some period.

    Broker Acting as Witness in Litigation Proceedings - Brokers must receive approval from their Sales Manager and Compliance to act as a witness. If a Broker
    receives a Summons to Appear, the Broker is to immediately inform their Sales Manager for further direction.
  • Overcharging -They must be the charges set by the firm for the circumstances and
    nature of the services being. Provided and the disclosed relationship between the firm and the

    Prompt and timely execution - Instructions and decisions to buy or sell shall be recorded as soon as
    taken, with the date and, whenever possible, the time.
  • The client must provide current, specific instructions for every transaction. This also applies to solicited trades sent via email - a broker is required to obtain
    consent before entering their

    Brokers are permitted to have discretionary trading authority over a client’s account only if the account is properly set up and the client has signed a
    discretionary agreement, approved by Compliance. LOM generally does not allow brokers to administer discretionary accounts.
  • The client must provide current, specific instructions for every transaction. This also applies to solicited trades sent via email - a broker is required to obtain
    consent before entering their

    Brokers are permitted to have discretionary trading authority over a client’s account only if the account is properly set up and the client has signed a
    discretionary agreement, approved by Compliance. LOM generally does not allow brokers to administer discretionary accounts.
  • The Know Your Client (“KYC”) rule states that brokers must use diligence to learn the essential facts relative to
    every client and every order. Broker’s are required to keep the client’s KYC information up to date, and at a
    minimum should update the KYC as soon as a material change in a client’s circumstances occurs.,
  • What is Material Information?
    Information is material where there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. Generally, this includes any information the disclosure of which will have a substantial effect on the price of a company‟s securities. No simple test exists to determine when information is material; assessments of materiality involve a highly fact-specific inquiry. For this reason, you should direct any questions about whether information is material to the Compliance Manager.

    What is Nonpublic Information?
    Information is “public” when it has been disseminated broadly to investors in the marketplace. For example, information is public after it has become available to the general public through a public filing with the BSX or some other government agency, the Bermuda Royal Gazette or some other publication of
  • Trading securities while in possession of material, nonpublic information, or improperly communicating that information to others may expose employees and LOM to stringent penalties. Criminal sanctions may include a fine of up to $1,000,000 and/or ten years imprisonment. The BMA and the SCB can recover the profits gained or losses avoided through the illegal trading, impose a penalty of up to three times the illicit windfall, and/or issue an order permanently barring you from the securities industry.
  • We are at risk for our facilities being used for purposes of dealing with proceeds of crime or terrorist financing, as are all financial institutions in all jurisdictions worldwide.
  • We are at risk for our facilities being used for purposes of dealing with proceeds of crime or terrorist financing, as are all financial institutions in all jurisdictions worldwide.
  • LOM’s senior management is responsible for ensuring that the following processes have been adopted;
  • 'Any act or attempted act to conceal or disguise the identity of illegally obtained proceeds so that they appear to have originated from legitimate sources'.
    In other words, it is the process used by criminals through which they make “dirty” money appear “clean”
  • Bribe taking, or kickbacks - occur when a private entity gives money to a PEP, or associate, in exchange for some form of government concession, such as a contract or the right to extract resources from the state.

    Extortion – occurs when a corrupt PEP has a personal financial interest in the acts and decisions made in this official capacity; which then results in funds passing from the victim of extortion to the PEP

    Self-dealing and conflicts of interest – occurs when a PEP has a financial interest in an entity which does business with the state, and the PEP uses his position to ensure the state does business with the entity.

    Embezzlement from state funds – occur when a PEP siphons, for personal use, money belonging to the state.
  • Use of Corporate Vehicles and Trust - As PEP’s ar often subject to public asset disclosure requirements and many other codes of conduct, these vehicles are one of the most effective ways to separate the origin of the illegal funds from the PEP controlling it.

    Use of offshore/foreign jurisdictions - Each additional country employed by the launderers in the corruption-related money laundering scheme has the effect of multiplying the complexity and length of the subsequent AML investigation, and reducing the likelihood of a successful prosecution.
  • Suspicious transaction means a transaction whether or not made in cash which, to a person acting in good faith –
  • Brokers must ensure that they collect sufficient information about their clients at the outset of the account relationship to ensure that they understand with whom they are conducting business. Accordingly, Representatives must:
  • In accordance with Regulation 11(1), LOM is required to conduct EDD measures on those clients which present a higher risk of money laundering or terrorist financing. Furthermore, the regulation prescribes three specific types of relationships for which EDD measures must be applied
  • Sound KYC procedures have particular relevance to the safety and soundness for LOM, in that:
  • Annual compliance training 2011 bermuda brokers

    1. 1. Compliance & AML Annual Training (Bermuda) Nigel Bell Compliance Manager January 2012
    2. 2. WHAT IS COMPLIANCE? “An independent function that identifies, assesses, advises on, monitors and reports on a company’s compliance risk, that is, the risk of legal or regulatory sanctions, financial loss, or loss to reputation a company may suffer as a result of its failure to comply with all applicable laws, regulations, code of conduct and standards of good practices” Basel committee supervision 2008
    4. 4. MISSION STATEMENT & OBJECTIVES To provide the LOM Group of Companies with compliance solutions that satisfy all regulatory requirements while promoting successful business practices To ensure that LOM attains high standards of regulatory Compliance by providing a practical, efficient and business friendly Compliance solution Compliance shall; 1. Establish wide Compliance and Anti Money Laundering/ Anti-Terrorism framework in line with applicable local and international laws and regulations; 2. The framework shall define requirements, set compliance objectives and outline a monitoring process to ensure effective implementation; 3. Raise awareness within the Company about the different components of AML framework through development of policies and procedures and periodic staff training/awareness sessions; and 4. Report and take appropriate action, upon detecting suspicious activities involving shades of money laundering as directed by regulators.
    5. 5. LOM COMPLIANCE GROUP Team Nigel Bell Compliance Manager Key Responsibilities: Group Policies & Procedures Credit & Risk Management Regulatory & Legal Matters Client Complaint AML Program Marketing & Account Approvals Broker & Trading Compliance Counterparty Relationships
    6. 6. COMPLIANCE FUNCTION LOM’s Compliance consist of three primary functions;  Advisory,  Monitoring & Surveillance and  Training
    7. 7. ADVISORY Compliance advises; Brokers on pre and post trade execution in the development of new products and services by providing guidance on relevant laws and regulations Assist in identifying and addressing conflicts of interest
    8. 8. MONITORING & SURVEILANCE LOM’s monitoring consist of; Identifying potential trading or compliance violations with internal policies and/ or applicable securities laws and regulations, Managing conflicts of interest, intentional wrongdoing and violations;
    9. 9. TRAINING & AWARENESS Educating staff on compliance issues, and acting as a contact point within the Company for compliance queries from staff members; and Establishing written guidance to staff on the appropriate implementation of compliance laws, rules and standards through policies and procedures and other documents such as compliance manuals, internal codes of conduct and practice guidelines
    10. 10. POLICIES & PROCEDURES As a licensed investment provider in Bermuda and Bahamas, we have a fiduciary obligation to our advisory clients. The Company has a duty of loyalty to always act in utmost good faith, place our clients’ interests first and foremost, and to make full and fair disclosure of all material facts and in particular, information as to any potential and /or actual conflicts of interest. As an employee of LOM, you are required to follow these principals by adhering to the following internal policies and procedures: Compliance Procedures Manual - Reviewed and updated annually or when there is a regulatory change LOM Group of Companies Policies & Procedures Compliance Manual - Reviewed and updated annually LOM’s Anti- Money Laundering & Anti-Terrorist Financing Policies & Procedures - Reviewed and updated annually or when there is a regulatory change LOM’s AML/ATF Training Manual - Reviewed and updated annually LOM’s Risk, Credit & Operation Manual - Reviewed and updated annually LOM’s Mobile Device Policy - Reviewed and updated annually
    11. 11. POLICIES & PROCEDURES LOM Policies & Procedures on the Dashboard
    12. 12. POLICIES & PROCEDURES New & Updated Policies & Procedures Policy & Procedure Last Updated Next Review LOM’s Mobile Device Policy November-10 November-11 LOM’s AML/ATF Training Manual January-11 January-12 LOM Group of Companies Policies & Procedures Compliance Manual July-11 July-12 LOM’s Anti- Money Laundering & Anti- Terrorist Financing Policies & Procedures October-11 October-12 LOM’s Risk, Credit & Operation Manual October-11 October-12
    13. 13. IBA ACT 2003 General Business Conduct and Practice – Code of Conduct
    14. 14. IBA ACT 2003 2 Professional Conduct Standards COC 2.4 LOM is expected to observe the tenets of any code or set of standards promulgated by any body, whether in Bermuda or elsewhere, which has responsibility in the public interest for the supervision or regulation of investment business or other financial services or for the setting of standards of conduct which govern the business conducted by LOM. Notwithstanding any inconsistency between such tenets and any applicable provisions within local code or any other legal requirement, LOM is expected to comply with such codes and accepted standards as part of its policy of observing good market practice.
    15. 15. SECTION I Maintaining Client Privacy & Confidentiality
    16. 16. PRIVACY POLICY 1.3 Privacy Policy As a licensed investment provider, LOM must comply with the respective regulations relating to privacy, which require the Company to adopt policies and procedures to protect client personal information. Such information may include personal financial and account information, information relating to services performed for or transactions entered into on behalf of clients, advice provided by LOM to clients, and any data or analyses derived from such personal information. Non-Disclosure of Client Information LOM does not share any client personal information with any non-affiliated third parties, except in the following circumstances: As necessary to provide the service that the client has requested or authorized, or to maintain and service the client's account; As required by regulatory authorities or law enforcement officials or as otherwise required by any applicable law (refer to 1.8 below); and To the extent reasonably necessary to prevent fraud and unauthorized transactions.
    17. 17. PRIVACY POLICY Safeguarding and Disposal of Client Information Employees must; Any document, statement, correspondence, personal notes, computer printouts, or other written material containing a client name, address, account information, proprietary LOM information, or any other privileged information that is no longer needed and not required to be kept, must be shredded rather than placed in the normal trash. NOT to store client information on any electronic media device NOT have any documents containing client names or other sensitive information left in view in reception or other public areas. Client files and logs should be kept in a secure location out of business hours. All client files must remain in the file room or with Compliance. 1.4 Employee Responsibilities All employees are prohibited, either during or after the termination of their employment with LOM, from disclosing confidential client information to any person or entity outside the firm, including family members.
    18. 18. PRIVACY POLICY “Employees should maintain the confidentiality of information learned in the course of their employment” 1.4 Employee Responsibilities – LOM Compliance Manual
    19. 19. PRIVACY POLICY The ‘Need To Know’ Concept and Information Barriers DO’s Be mindful of who has access to your drive(s) Limit/control email distribution of sensitive information Consider disabling auto-complete function in Outlook Advise Compliance of potential information barrier violations. Advise Compliance of any security threats that you become aware of DON’Ts Send emails containing sensitive information to personal/internet outside email accounts (hotmail, gmail, yahoo) Give temp staff access to sensitive information without proper consideration of potential impact Allow individuals leaving department to continue to have access to folders Give uncontrolled systems access to your department Discuss non-public information in public areas, or discuss information with other LOM employees who do not have a valid business reason to know
    20. 20. PRIVACY POLICY 1.5 Maintaining Confidentiality of Private Proprietary Information Employees are expected to follow the following security measures: Always obtain consent from Compliance with respect to the removal of any Documents containing confidential information from the office. Any copies removed from the Company’s offices must be promptly returned. Physical access to any non-electronic confidential information must be limited by either locking or monitoring access to the offices and storage areas where such information is located. Visitors to the Firm's office MUST be monitored and accompanied by an employee.
    21. 21. SECTION II Personal Trading
    22. 22. PERSONAL TRADING 2.1 Staff Trading Accounts LOM employees trading their personal account must ensure that: The interests of client accounts will at all times be placed first; All personal securities transactions will be conducted in such manner as to avoid actual or potential conflicts of interest or any abuse of an individual’s position and responsibility; and Must not take inappropriate advantage of their positions. 2.6 Annual Holdings Disclosure Every year employees are required, upon request, to disclose all security accounts held at LOM and externally, as well as any new brokerage accounts that were opened and not disclosed throughout the year.
    23. 23. PERSONAL TRADING LOM employees are permitted to trade for their personal accounts provided: The account and trading does not interfere with a staff member's work Accounts are kept well within appropriate normal operating and margin guidelines, the same that apply to clients. There is NO front running of client orders. Policy 2.2 Transactions between Staff and Client Accounts All transactions between a broker and clients must be disclosed and pre-approved by their Manager or Compliance. This includes transfers of cash or securities, and crosses of securities. Employees must inform Compliance of all personal trading accounts including those accounts where: The account is in the name of a partner and/or spouse of an LOM employee; and An LOM employee either has direct or indirect authority or control, beneficial interest or serves as a trustee on the account.
    24. 24. SECTION III Conflicts of Interest & Outside Business Activities (“OBA”)
    25. 25. CONFLICTS & OBA 3.1 Conflicts of Interest and Outside Business Activities In accordance with BMA regulations; “Integrity & Fair Dealing - An investment provider shall observe high standards of integrity and fair dealing in the conduct of its investment business and shall avoid conflicts of interest”. (Code of Conduct)” Executive, Senior Management and all employees are required to avoid any outside activities, interests or relationships that either directly or indirectly conflict with, or create the appearance of the existence of a conflict of interest with their ability to act in the best interests of the Company and its clients. If a conflict of interest or the appearance of a conflict arises between the interests of the Company or its clients and the interest of the employee, the interests of the Company and Its clients will prevail. The determination as to the existence or appearance of a conflict is made by the Compliance Manager in his sole discretion.
    26. 26. CONFLICTS & OBA The following are some examples of common conflicts of interest: Employee/LOM Conflicts personal interest (direct or indirect) in employment related matters such as a contract with inappropriate use of LOM facilities or property for personal or outside activities; external employment/not-for-profit work /outside businesses and other activities that conflict with the employment duties for LOM; inappropriate external Directorships; Employee/Client Conflicts direct/indirect personal interest in client matters; advice and actions intended to improperly maximize variable compensation; LOM Client Conflicts misuse of client information; misuse of client property or delegated rights: inappropriate soft dollar arrangements; market manipulation, inappropriate research or analysis or inappropriate use or disclosure of same; relationships with multiple clients with conflicting interests
    27. 27. CONFLICTS & OBA Private Investments, Outside Business Activities, External Directorships Must be disclosure to;  Compliance Reason  Potential conflicts and regulatory issues  Regulators requires compelling evidence of due diligence  May be required to disclose to regulators Example of annual form sent by Compliance
    28. 28. CONFLICTS & OBA OTHER ACTIVITIES that require prior written (or verbal) consent of their Manager and/or the Compliance Manager:  Rebating, either directly or indirectly, to any person or entity any part of the compensation received from the Firm as an employee;  Accepting, either directly or indirectly, from any person or entity, other than the Firm compensation of any nature as a bonus, commission, fee gratuity or other consideration in connection with any transaction on behalf of the Firm or a client account;  Beneficially owning any security or having, either directly or indirectly, any financial interest in any other organization engaged in any investment or related business, except for beneficial ownership of not more that 4.9% of the outstanding securities of any business that is publicly owned; and  Executing transactions in securities for which any employee or an immediate family member holds a position on the board of directors or any other committee of a publicly traded company.
    29. 29. SECTION V Broker & Trader Compliance
    30. 30. BROKER & TRADER COMPLIANCE In accordance with BMA regulations, “Standards Of Market Conduct - An Investment provider shall meet high standards of market conduct including Compliance with the relevant statute law and any Code or standard (applying to the Investment provider), which has been issued or endorsed by any Investment Exchange on which business is conducted by the Investment provider.” 5.1 Responsibilities of Traders/Brokers Traders and brokers individually have the authority and the responsibility to reject any orders received by the trading desk which they believe to be improper. If an order is rejected by a counterparty because it is believed to be improper or raises compliance concerns, the order must be rejected by the LOM trader – no further effort is to be made by the trader to execute the rejected order through another counterparty. Traders and Brokers are expected to be pro-active in monitoring the authenticity and legality of all trade orders. Any irregularities are to be brought to the attention of the Compliance Manager immediately.
    31. 31. BROKER & TRADER COMPLIANCE 5.2 Ought to Have Known Rule Brokers and Traders are considered to be professionals in the investment field. Therefore, you are required to be familiar with all rules and regulations of the industry. Regulators use the concept of “ought to have known”. The concept essentially means that a reasonable person operating under the same conditions would be reasonably expected to recognize the potential impact on the market or the client of an order accepted by the broker and/or trader. In complaint situations, “I only took the order” is often not a valid defense. 5.3 Scope of activity LOM brokers and traders are prohibited against participating in the following activities; Offering services to clients that are beyond the scope of their employment with LOM. Acting in the capacity of trustee, executor or power of attorney on behalf of a client under any circumstances as it is the firm’s view that a conflict of interest exists or may be perceived to exist in these situations. This does not include staff acting as a trustee, executor or power of attorney for immediate family members. Examples; Referral Fee Arrangement etc.
    32. 32. BROKER & TRADER COMPLIANCE 5.3 Brokers & Traders Scope of Activities continued…….  Signing External Agreements - Brokers are not permitted to sign external agreements on behalf of LOM.  Broker Acting as Witness in Litigation Proceedings - Brokers are generally discouraged From volunteering to act as a witness in litigation proceedings due to potential conflicts of Interest and reputational risk management.  Referral Fee Arrangements - Any fee sharing arrangements for referrals or otherwise should be in writing (sample agreements available), and must be approved in advance by compliance, finance, and sales manager. LOM is not a party to such agreements however disclosure and pre-approval are still required. Brokers who refer a client to a person or entity appearing to conduct investment business which is not licensed in Bermuda must disclose such information to the client.  Broker/ Traders involvement in Raising Capital - Raising funds for a company associated in any way with a particular broker or a client of the broker, from other clients of LOM is prohibited unless the subject of prior written consent from management.
    33. 33. BROKER & TRADER COMPLIANCE 5.4 Integrity and Fair Dealing In accordance with meeting our regulatory obligations, brokers and traders (when applicable) are required to adhere to the following;  Overcharging - Charges posted to client accounts shall not be unfair in their incidence or unreasonable in their amount.  Churning - Brokers must not carry out unnecessary transactions, or in unnecessary frequency or excessive size, for a client’s account for the purposes of generating commissions for the broker and/or the firm.  Prompt and timely execution - Traders and brokers shall act promptly in accordance with their instructions, Unless they have been given discretion as to timing and use that discretion in an alert and sensible way.
    34. 34. BROKER & TRADER COMPLIANCE 5.7 Manipulative Trading Practices In accordance with BMA regulations, “Market Manipulation - In any activities relating to trading in securities, investment providers must not engage in any market manipulation or any other conduct directly or indirectly with the aim of manipulating securities market prices.” Brokers & Traders are required to notify compliance of any of the following client activities;  Client creating or attempting to create a false or misleading appearance of active public trading in a security (that is, fictitious orders for the same security placed with a variety of securities houses);  Entering or attempting to enter into any scheme or arrangement to sell and repurchase a security in an effort to manipulate the market; or Causing the last sale or last bid or offer for the day in a security to be higher or lower than warranted by the prevailing circumstances with the intent to manipulate closing price quotations;  Using or attempting to use any manipulative or deceptive scheme or contrivance to influence the market price of a security;
    35. 35. BROKER & TRADER COMPLIANCE 5.8 Trading Practices Brokers and traders must be impartial, deal fairly with all clients, and avoid: making statements and representations that could be misinterpreted by the client; selling techniques that could be deemed inappropriate by the regulators. Any of the following occurrences would be considered violations of the code of conduct of trading.  making statements that in any way suggest to a client that a security will be resold or repurchased, or that the purchase price of a security will be refunded;  giving a client the impression that the future value of a security will be guaranteed;  overstating the likelihood to a client that a private security will be listed on an exchange;  promotional or unusual sales activity in connection with transactions in any securities, public offerings or private placements
    36. 36. BROKER & TRADER COMPLIANCE 5.6 Unauthorized Discretionary Trading NEVER enter an order in a client account without having obtained prior authorization from an authorized account holder (or authorized designate) to do so. Furthermore, a Broker should not execute transactions in a client account based on past conversations with the client. order.
    37. 37. BROKER & TRADER COMPLIANCE 4.2 Know Your Client and Suitability Brokers must, with respect to each trade/transaction in the client’s account: ensure that investment recommendations are appropriate and in keeping with the client’s investment objectives; determine if the client understands the risk involved in proposed recommendations and, if the client can afford the risks both psychologically and financially in volatile markets; properly caution the client and ensure that the client understands the risk involved with an investment; ensure that any order is within the bounds of good business practice; and periodically review the portfolio to ensure that the client’s holdings are in line with client’s investment objectives and risk tolerance.
    38. 38. BROKER & TRADER COMPLIANCE 5.9 Sales Practices/ Solicited Trades In accordance with securities regulations,  “Suitability - In making recommendations to a client, in exercising discretion, and in advising about the client’s instructions, a broker shall ensure as far as it can, having taken reasonable steps to inform itself of what is available on the market, that purchases and sales are not unsuitable for the client and that they are positively suitable for him if he is a private investor. And,”  “Informed investment decisions - A broker shall take all reasonable steps to enable clients to make informed investment decisions and shall avoid misleading or deceptive representations or practices. “
    39. 39. SECTION III Email Communications
    40. 40. EMAIL COMMUNICATIONS 3.3 Email Communications  LOM’s policy provides all written communications must always be of a professional nature. This includes, your work e-mail, instant messaging, and any other electronic communication used to correspond with clients.  All emails that are sent received or composed using LOM systems or while in LOM offices are the property of LOM, and are subject to review by management 9.4 Email Distribution Brokers sending out emails to more than 10 recipients are required to obtain the approval of their Sales Manager and/or Compliance, as there will need to be a review conducted to determine if the content of the email would be considered advertising or solicitation.
    41. 41. EMAIL COMMUNICATIONS E-mail Misuse May Have Disastrous Results DOs Be factual and specific in your e-mail communications Be sensitive to the inclusion of confidential information Send the e-mail only to those people who really need to see it; copy people infrequently and judiciously Call others or arrange a meeting to debate or discuss issues rather than doing so on e-mail DON’Ts Engage in substantive debates in e-mail or deal with sensitive issues by e-mail Send emails containing sensitive information to personal/internet outside email accounts (hotmail, gmail, yahoo) Copy people without seriously considering whether its appropriate to do so Forward e-mails to other people without informing the author of the e-mail, particularly where the e- mail contains legal advice
    42. 42. SECTION IX Marketing & External Communications
    43. 43. MARKETING Generally, all advertising and marketing material must NOT contain: a statement, promise or forecast which is untrue or misleading; a statement of fact which the investment provider does not at the time the advertisement is issued have reasonable grounds to believe to be true; a statement of opinion held by any person (whether an investment provider or any other person) which the investment provider does not at the time the advertisement is issued have reasonable grounds to believe to be the honestly held opinion of that person at that time; a statement of fact which the investment provider does not at the time the advertisement is issued have reasonable grounds to believe will continue to be true for so long as it remains relevant to the subject matter of the advertisement; a statement about the nature or scale of the activities of, or the resources of (or available to), the investment provider which is misleading in a material fashion
    44. 44. MARKETING 9.2 Approval Required Content of all advertising, marketing or promotional material, including unsolicited marketing letters, must be pre-approved by Compliance. Examples; 9.3 LOM Logo and Letterhead Brokers may not reproduce the LOM logo for use in their personal marketing materials. When using letterhead, only official printed LOM letterhead may be used - personalized or computer generated letterhead may not be used, unless specifically approved in advance. Facsimile coversheets should conform to the standard of the local office. 9.6 Direct Mail Use of unsolicited direct mail is discouraged, but may be allowed in some limited cases with Compliance approval and where the mailing list is directed at a specific, non- random group (e.g. estate planners). In those cases approved, care must be taken not to directly solicit the opening of a securities account or trading of securities. Where possible, the term “sophisticated” or “accredited” investor should be included.
    45. 45. MARKETING 9.7 Proprietary & Third Party Research Dissemination LOM does permit brokers to circulate both proprietary and/ or third party research to clients, provided that: In the event that it is third party, the vendor has been approved by Compliance, contains the applicable disclaimers, and is clearly identified as not being LOM material. Please consult with Compliance for appropriate disclaimers. The broker has not acted upon receiving advance knowledge of anything that might possible by price sensitive prior to sending the information out to clients 9.8 Public Appearances and Marketing Trips LOM representatives speaking outside of Bermuda or Bahamas, in public, should only speak generically about offshore investing. If participating in a conference, investment seminar, or any similar event in an onshore location, public remarks should be limited to the merits of offshore investing in a general sense and should not include a specific LOM sales pitch. Because what is permissible in a given situation is not always clear, brokers must consult with Compliance or their manager regarding any planned marketing strategies or trips in advance.
    46. 46. SECTION III Insider Trading & Tipping
    47. 47. INSIDER TRADING General Policy No employee may trade, either personally or on behalf of others (such as investment funds and private accounts managed any the LOM Companies), while in the possession of material, nonpublic information, nor should any employee of LOM communicate material, nonpublic information to others in violation of the law.
    48. 48. INSIDER TRADING Trading or tipping on the basis of inside information is prohibited. The penalties are among the most severe under securities laws:  include jail sentences  fines  regulatory proceedings  civil liability  damage to reputation Penalties
    49. 49. SECTION III Gifts & Entertainment
    50. 50. GIFTS & ENTERTAINMENT The policy applies to all LOM employees Gifts cannot exceed an aggregate of $200 per person per year from any one person or firm and must be approved by Compliance Employees must disclose both gifts given and gifts received. Both Gifts and Entertainment should be given in the spirit of business courtesy and not as an attempt to influence business decisions or create a sense of indebtedness. Employees must avoid any kinds of Client Entertainment that could be detrimental to the firm’s reputation or standing in the community.
    51. 51. GIFTS & ENTERTAINMENT  (a) (b) Scenario
    52. 52. AML ATF TRAINING Anti-Money Laundering & Anti- Terrorist Financing (“AML/ATF”)
    53. 53. AML/ATF MISSION STATEMENT LOM is committed to reducing AML/ATF risk to the best of its ability. LOM aspires to be the premier offshore financial company, through a commitment to providing a consistently superior standard of service and investment products to our customers. LOM has an equal commitment to preventing money laundering and terrorist financing, and complying will all applicable legislative requirements. Senior management and LOM Board of Directors are responsible and accountable for ensuring compliance with such regulations. The Company expects its managers and employees to promulgate a culture of applying the “know-your-customer” tenet in the execution of their daily responsibilities, as well as to constantly “think risk”.
    54. 54. ROLES & RESPONSIBILITIES LOM Managers & Employees Managers and employees have the responsibility to protect the firm from exploitation by money launderers and parties who fund terrorism. It is required that all employees will follow these procedures as related to the employees’ daily activity. Each employee must remain vigilant to any unusual or suspicious activity and bring such activity to the attention of the MLRO, or Management in a timely manner.
    55. 55. ROLES & RESPONSIBILITIES LOM’s Senior Management Appointing a director or senior manager overall responsibility for the establishment and maintenance of effective AML/TF systems of control and the appointment of a person with adequate seniority and experience as an MLRO; That appropriate training on money laundering is identified, designed, delivered and maintained to ensure that employees are aware of, and understand their AML requirements; That regular and timely information is made available to senior management relevant to the management of the firm’s money laundering and terrorist financing risks; That the firm’s risk management policies are appropriately documented including the firm’s application of those policies and methodologies
    56. 56. ROLES & RESPONSIBILITIES LOM’s Money Laundering Reporting Officer (“MLRO”) MLRO is responsible for (amongst others) the implementation of the AML Program including; 1. The development and application of AML compliance policies and procedures. 2. Arranging and conducting periodic independent testing to ensure effectiveness of the AML program. 3. Ongoing employee training for all employees The MLRO overseas the day-to-day operation of the AML program.
    57. 57. WHAT IS MONEY LAUNDERING  Illegally obtained money Conversion Criminal Activity Drugs / Arms Trafficking Terrorism Extortion Appears to originate from legitimate source
    58. 58. TERRORIST FINANCING  Money to fund terrorist activities moves through the global financial system via wire transfers and in and out of personal and business accounts  It can sit in the accounts of illegitimate charities and be laundered through buying and selling securities and other commodities, or purchasing and cashing out insurance policies.
    59. 59. MONEY LAUNDERING METHODS The Most Common methods used to launder the proceeds of Grand Corruption; 1. Bribe taking, or kickbacks - Example, former president of the Philippines Joseph Estrada received funds from gambling operators in exchange for their protection from arrest. 2. Extortion – Example, the former Prime Minister of Ukraine Pavel Lazerenko required entities wishing to do business in the Ukraine to split equally the profits of the enterprise in exchange for his influence in making the business successful. 3. Self-dealing and conflicts of interest – Example, in a US State Department report, a West African PEP was responsible for selling the right to harvest timber from public lands whilst also owning the company awarded those rights. 4. Embezzlement from state funds – Example, the former President of Nigeria, Sani Abacha, directed his national security advisor to create and present false funding requests, the proceeds of which ere then laundered for personal use.
    60. 60. GRAND CORRUPTION The following are the most common features of grand corruption: 1. Use of Corporate Vehicles and Trust – Cases show that PEP’s are particularly likely to use such vehicles to launder the proceeds of their corrupt activities. 2. Use of Gatekeepers – Gatekeepers are individuals, such as legal and financial experts, that “protect the gates to the financial system”. Cases have shown that lawyers are often used to launder the proceeds of corruption by creating corporate vehicles, opening bank accounts, and using other means to avert AML controls. 3. Use of domestic financial institutions – Historically, much of the focus has been on the risk posed by foreign PEPs laundering their proceeds through foreign bank accounts. However, cases also confirm that domestic PEPs present a substantial risk for corruption-related to money laundering as well. 4. Use of offshore/foreign jurisdictions – In nearly every case, foreign bank accounts were used as part of corruption-related to money laundering scheme; with the illicit funds typically flowing from a developing Country to financial institutions in more developed countries. 5. Use of Nominees – Cases have indicated that the use of trusted associates, or family members, as nominees is a common feature in the facilitation of the corrupt activities of PEPs 6. Use of Cash – In a significant number of cases, the corrupt PEP wanted the laundered funds to be in the form of cash; PEP was then able to place the cash without attracting undue attention
    61. 61. ML/ATF RISK What are the risks to LOM? (i) Reputational risk (ii) Legal risk (iii) Operational risk - (failed internal processes, people and systems & technology) (iv) Concentration risk - (either side of balance sheet) All risks are inter- related and together have the potential of causing serious threat to the survival of the company
    62. 62. OPERATIONAL RISK  The risk of direct or indirect loss resulting from inadequate or failed internal processes, people and systems or from external events  Weaknesses in implementation of LOMs’ programs, ineffective control procedures and failure to practice due diligence
    63. 63. LEGAL RISK  The possibility that lawsuits, adverse judgments or contracts that turn out to be unenforceable can disrupt or adversely affect the operations or condition of LOM  LOM can become subject to lawsuits resulting from the failure to observe mandatory KYC standards or from the failure to practice due diligence  LOM can suffer fines, criminal liabilities and special penalties imposed by supervisors
    64. 64. CONCENTRATION RISK  Mostly applies on the assets side of the balance sheet: Information systems to identify credit concentrations; setting prudential limits to restrict LOMs’ exposures to single borrowers or groups of related borrowers  On liabilities side: Risk of early and sudden withdrawal of funds by large account holders- damages to liquidity
    65. 65. AML CASES Footballer convicted of money laundering – Cambridge A Cambridge footballer has received a six month suspended sentence for laundering funds received through an eBay credit card scam. Luxury lifestyle nabs money launderers – Manchester Designer handbags, luxury cars and an expensive wedding while living on benefits and a £15,000 wage from a car rental firm landed one Manchester couple in jail for money laundering. The prosecution was not required to demonstrate that they had engaged in any specific criminal activity but rather the court was satisfied that the complete lack of a legitimate explanation for the source of funds meant that they were criminally obtained. She received an 18 month sentence while her husband was sentenced to 11years jail for money laundering, arson and escape from custody. Account jailed for 6 years for laundering drug money – Wilmslow An accountant who laundered more than £1.2m for his drug dealing boss was jailed for six years. The laundering process involved the creation of a complex web of international trusts and companies in jurisdictions including the UK, the BVI, the Seychelles and Azerbaijan. The accountant utilised a hotel, also purchased as a part of the laundering scheme, to proceed to defraud his boss to fund his lifestyle.
    66. 66. AML CASES Portfolio criminal loses cash as penalty for laundering – Doncaster A Doncaster man who had committed a series of frauds to fund a portfolio of properties and his tanning salon business, obtained a loan by deception, failed to declare income for tax purposes and was in possession of 10,000 illegal cigarettes was sentenced to two years in jail. He was convicted of a money laundering charge for possessing £50,000 in cash, the origin of which he could not explain. He did not receive any jail time for this offence but the cash was forfeited. Loan shark given suspended sentence for laundering – Cumbria An unlicensed money lender was given a nine month suspended sentence for laundering funds received from his illegal business. Family jailed for laundering proceeds of father's tax evasion – London A family whose father's company failed to pay appropriate income tax on his security guard business has paid a hefty price. His wife and three daughters were convicted of laundering £1.3m through their bank accounts. The mother was sentenced to 16 months imprisonment and the daughters each received community service orders with suspended prison sentences.
    67. 67. SUSPICIOUS TRANSACTIONS  gives rise to a reasonable ground of suspicion that it may involve the proceeds of crime; or  appears to be made in circumstances of unusual or unjustified complexity; or  appears to have no economic rationale or bonafide purpose; Examples;  Large cash deposits into same account  Substantial increase in turnover in a dormant account  Receipt or payment of large cash sums with no obvious purpose or relationship to Account holder / his business  Reluctance to provide normal information when opening an Account or providing minimal or fictitious information
    68. 68. SUSPICIOUS TRANSACTIONS Vigilance is one of the most important safeguards to protect LOM from being used by money launderers and terrorist financiers. Unusual behavior is difficult to define and depends on individual circumstances. But a general definition is: “A client’s behavior is unusual if it is not in keeping with their normal or expected behavior or if it is at odds with the typical operation or use of a specific type of account or product.” Knowing our clients, understanding the details of their transactions, and having an acute awareness of the functions of the products they hold with LOM is critical not only to achieving our business goals and in serving our clients but also in recognizing when their behavior – as a client of LOM – becomes “unusual.” By “knowing” their clients, employees will be alert to transactions or behavior that could be considered unusual or suspicious. Although it is not your responsibility to "catch the criminal,” it is your responsibility to be aware of and report internally unusual or suspicious client activity.
    69. 69. RED FLAGS Transactions involving cash or structuring Client always wants to purchase investment with a cash only deposit Client makes large or unusual settlements of securities with cash only deposits Client wishes to purchase a number of investments with money orders, traveller’s cheques, Cashier’s cheques, bank drafts or other bank instruments, especially in amount that are slightly less than $10,000, and the transaction is inconsistent with the normal investment practice of the client or their financial ability. No regard to costs Client seems unconcerned about the usual decisions to be made about an investment account such as fees or suitable investment vehicles. Client is will to deposit or invest at rates that are not advantageous or competitive Client appears unconcerned about risks. Inconsistent activity Sudden substantial increases in cash deposits or levels of investment, without adequate explanation Reactivation of dormant account with a sudden large investment that is inconsistent with the normal investment practice of the client or their financial ability. Client uses securities or futures brokerage firm as a place to hold funds that are not being used in trading of securities or futures for an extended period of time and such activity is inconsistent with the normal investment practice of the client or their financial ability.
    70. 70. RED FLAGS Signs of Market Manipulation, Insider Trading or other fictitious trading • The entry of matching buying and selling of particular securities or futures contracts (called match trading), creating the illusion of trading • Several clients open accounts within a short period of time to trade the same stock. • Client is an institutional trader that trades large blocks of junior or penny stock on behalf of an unidentified party Unrelated clients or third-party type transactions • Transfers of funds or securities between accounts not known to be related to the client • Unrelated clients redirecting funds towards the same account • Payments made by way of third party cheques that are payable to, or endorse over to, the client International /Offshore banking centers • Customer uses their LOM account as a pass-through vehicle to wire funds, particularly to offshore locations
    71. 71. WHAT IS CDD? Under Bermuda regulations - POCA Reg. 5, Customer Due Diligence is defined as: Customer IDENTIFICATION and VERIFICATION process LOM responsibility to IDENTIFY the beneficial owner(s) and on a risk-sensitive basis VERIFY their identity and understand the OWNERSHIP & CONTROL structure of a entity UNDERSTAND and DOCUMENT the true purpose and intended nature for the account. Take reasonable steps to determine the true identity of all personal and business clients requesting services; Ensure that verification of identity and verification of the existence of an entity is conducted as required by law; Identify the true ownership of, or interest in the account (by requesting the requisite beneficial ownership and third party information); Determine the source of funds for the initial deposit or transaction through the account (i.e. sale of property or estate proceeds); Determine the purpose of the account which should be an indication of anticipated activity levels and types of transactions that will likely be processed through the account.
    72. 72. WHAT IS EDD? EDD is; 1. Non-Face to Face meetings for identification purposes 2. Correspondent Banking relationships and 3. Initiating a business relationship or carrying out an occasional transaction with a PEP 4. Situations that present a higher risk i.e. client in a high risk jurisdictions.
    73. 73. CDD FOR INDIVIDUALS IN PERSON NOT IN PERSON Identification Valid Passport or Drivers License Notarized Passport or Drivers License IVF Form (each applicant) IVF Form (each applicant) Reference Letter (each applicant) Address Confirmation (Any ONE of the following are acceptable for each applicant) Utility Bill (Belco, Water Bil etc.) Utility Bill (Belco, Water Bil etc.) Bank Statement Bank Statement Other Bills (Cablevision, Digicel etc.) Other Bills (Cablevision, Digicel etc.) Drivers License Drivers License
    74. 74. CDD FOR BUSS/CORPS CORPORATE/BUSINESS APPLICANTS Identification (for each Signatory & Beneficial Owner) Valid Passport or Drivers License Notarized Passport or Drivers License IVF Form IVF Form Reference Letter Address Confirmation (Any ONE of the following are acceptable for Each Signatory) Utility Bill (Belco, Water Bil etc.) Utility Bill (Belco, Water Bil etc.) Bank Statement Bank Statement Other Bills (Cablevision, Digicel etc.) Other Bills (Cablevision, Digicel etc.) Drivers License Drivers License Account Applications NCAF NCAF Corporate Resolution Corporate Resolution Certificate of Incumbency Certificate of Incumbency Certificate of Incorporation Certified Certificate of Incorporation Certificate of Good Standing (if incorporated more than one year) Certificate of Good Standing (if incorporated more than one year) Margin Agreement (if applicable) Margin Agreement (if applicable) Other Required Documentation Broker Sheet Broker Sheet Manager Sign off Manager Signoff
    75. 75. WHAT IS KNOW YOUR CLIENT  true identity and beneficial ownership of accounts;  Sources of funds  Nature of customers’ business  What constitutes reasonable account activity?  Who your customer’s customer are? Making reasonable efforts to determine to ensure that you know;
    76. 76. KNOW YOUR CLIENT KYC does NOT mean;  Denial of Service to the Common Person  Intrusive Behavior  Use of information for cross selling  Harassment of customers- threatening to close down the accounts arbitrarily
    77. 77. PRO’S TO KYC 1. It helps to protect firms’ reputation and the integrity of its banking systems by reducing the likelihood of the firm becoming a vehicle for or a victim of financial crime and suffering consequential reputational damage; 2. It also provides an essential part of sound risk management system (basis for identifying, limiting and controlling risk exposures in assets & liabilities)
    78. 78. SUMMARY FOR PREVENTING ML/ATF Compliance with Laws Identifying Irregular / Suspicious Transactions Customer Due Diligence Money Laundering & Terrorist Financing Prevention On-going Monitoring
    79. 79. THE END QUESTIONS?